Affairs

Late in 1992 Itamar Franco (see BIOGRAPHIES) replaced Fernando Collor de Mello as president of Brazil when the latter resigned during his impeachment trial. Franco was sworn in to complete the remainder of Collor’s five-year term, which was to run to January 1995. Early in 1993 Franco managed to galvanize cross-party support from the great majority of members of Congress--who had supported the impeachment of Collor for his alleged involvement in a multimillion-dollar corruption and influence-peddling scheme--for legislative measures needed to help overcome a fiscal crisis.

In late January, Congress approved a package of partial tax reforms and the modernization-of-ports bill. On January 20 the introduction of a tax of 0.25% on checks and related bank transfers was approved. This aimed to raise some $7 billion of additional revenues in a full year, but obstacles to implementation prevented it from going into effect until the end of August. Only a few weeks after its introduction, the Supreme Court suspended collection pending a review of its constitutionality, which was due to be completed by the end of the year.

To help win support for the fiscal measures, Franco had to assure members of key parties (especially the Party of the Brazilian Democratic Movement [PMDB] and the Workers Party [PT]) that a portion of new revenues would be deployed in social projects in the spheres of housing and education. Finance Minister Paulo Haddad had incorporated such provisions in his plans for the economy, but they were delayed until late April owing to his resignation on March 1. His successor, Eliseu Resende, retained the basic outlines of the plan, which was announced on April 24, but also emphasized the use of funds originally designated for privatization to finance social projects. The Resende plan included a $2.6 billion low-income-housing program, public works projects, an emergency food-distribution plan, reduced import tariffs on medicines, and subsidies to agriculture.

Following a decline in gross domestic product (GDP) of 0.9% in 1992, the government’s underlying aim was to reflate the economy modestly so as to provide growth of about 3.5% in 1993. Although initially well received, the plan faced implementation difficulties and required a revision of the budget, which had been approved only one month earlier. Resende’s stay in office proved short, his resignation coming in the third week of May after allegations that he had been involved in influence-peddling activities. On October 17 a former senior treasury official accused more than 30 politicians, including some members of the Cabinet, of corruption and unleashed a new congressional inquiry.

Brazil’s national plebiscite on the form and system of government took place as planned on April 21. Two-thirds of the 50 million voters who cast valid ballots favoured retaining the presidential system, and a six-to-one majority also voted to keep the republican form of government.

Revision of the constitution was scheduled to begin after Oct. 5, 1993. Despite efforts of some groups (led by the PT and the Democratic Labour Party [PDT]) to prevent it, the review did begin on October 7. Deliberations during the remainder of that month were dominated by procedural issues and amendment proposals, with long-term fiscal reforms (including changes in the allocation of federal funds to state and municipal governments) being among the priorities.

Fernando Henrique Cardoso of the Social Democrat Party (PSDB) was nominated to the post of finance minister (having previously been foreign minister) after Resende’s departure in late May. Cardoso moved in the following months to appoint other PSDB members to senior posts both within his ministry and to other key agencies such as the National Development Bank and the central bank. Cabinet posts were reshuffled during August and September, triggered initially by the failure of the Socialist Party (PSB) to support the government in a crucial vote on a revised wage bill; the government later won a majority in the vote on the bill. The PSB relinquished several Cabinet posts, providing Franco with an opportunity to bring in the Progressive Reform Party and widening his base of political power.

Incidents of violence continued to mar life in Brazil in 1993. In July three military policemen were arrested and charged with the killing of seven homeless boys in Rio de Janeiro, and a month later 33 policemen were apprehended for the murder of 21 people in a Rio shantytown. Also in August illegal Brazilian gold miners in remote Amazonas state reportedly killed 73 members of the Yanomamö Indian tribe, although later reports significantly reduced the number of deaths and placed the killings across the border in Venezuela.

The Economy

It became evident during the first quarter of 1993 that a recovery was under way, industrial output having begun to improve in late 1992, helped by lower domestic interest rates. Industrial output for the first quarter of 1993 increased 8% over the same period of 1992, largely because of even larger rises in the consumer durables sector, where there was buoyant vehicle production. GDP grew about 5.5% during the first half of 1993, led by a 10.9% increase for manufacturing.

Despite the efforts of successive finance ministers to stabilize the economy and bring the public-sector accounts into balance without resorting to such drastic measures as price and wage freezes, inflation continued on an upward curve, increasing from more than 27% in January to about 30% in June and 35% in October. The draft budget for 1994 was made available in early August 1993, but the events of October made it necessary for Cardoso to revise this with a view to reducing a projected deficit of some $25 billion.

Legislation was signed on September 8 to separate the accounts of the central bank and the treasury (the move also permitted the transfer of $52 billion held in government debt instruments from the bank to the treasury), paving the way for the central bank to deal with monetary and exchange-rate policy while the treasury handled fiscal policy. Further progress was made with privatization, with the entire steel sector having been disposed of by the end of September. A number of petrochemical concerns were scheduled to be auctioned in November.

The external accounts position continued to be positive. By the end of September, the nine-month trade surplus had reached $10.3 billion, with exports close to $29 billion and imports $18.6 billion. Susan M. Cunningham